Navigate the accounting for government assistance

Navigate the accounting for government assistance

Follow these steps to determine how best to account for government assistance, including PPP loans.

Without explicit U.S. GAAP guidance on how for-profit organizations should account for certain forms of government assistance, businesses are left to determine an accounting policy based on the form and substance of the assistance received.

To help you understand your options, we’ve developed a four-step decision-making framework that walks you through key accounting considerations. This framework applies for any type of government assistance – loans, grants, income or payroll tax relief, asset purchase programs, or loan and lease modifications. 

Decision-making framework: How to account for government assistance

For each step, consider the following questions:

Step 1. Does U.S. GAAP provide explicit or industry-specific guidance?

If so, apply the explicit GAAP model. An example would be applying ASC 740 to income-tax-based credits or other forms of income tax relief.

Step 2. Does the assistance represent an exchange transaction? 

To put it another way, does the substance of the arrangement constitute an exchange of government funds for your organization’s goods or services? If so, apply ASC 606. For example, under the Medicare Accelerated and Advance Payment Program, healthcare providers may be prepaid for the rendering of future patient services.

Step 3. Has your organization received this form of government assistance before? 

If you previously received similar aid under similar circumstances, then apply the previously elected policy. However, because most forms of COVID-19 pandemic assistance are likely to differ enough from previous assistance, we suspect you will be able to elect a new policy.

Step 4. What accounting policy would best reflect the substance of the arrangement?

If you do not have an existing accounting policy in place, select a policy that best reflects the substance of the assistance, based on the relevant facts and circumstances. For not-for-profit organizations (NFPs), ASC 958-605 is likely to apply. For-profit organizations might have more options, including ASC 470/ASC 405-20, IAS 20, ASC 958-605, and ASC 450-30.
Crowe accounting professionals have a deep understanding of COVID-19 government assistance programs, including relief programs such as the CARES Act, PPP loans, and the Main Street Lending Program. We can help you consider your options, prepare financial statements and disclosures, and develop and implement policies and procedures that can stand up to an audit. 

Contact us

Contact us to learn more about accounting for government assistance.
Sean Prince
Sean C. Prince
Partner, National Office
Julie Ward
Julie Ward
Office Managing Partner, Columbus